I could write a very short blog post here and say: Just don’t do it if you can’t live your small dwelling dream without a mortgage.
I know now one of the cornerstones of the Small House Movement is to simplify life, which includes ridding ourselves of unnecessary debt. If I had learned of Kent’s Tiny House blog and read his advice about getting out of debt sooner, I may not be writing this now.
We didn’t build a lavish small house with all of the bells and whistles. We built our Little House based on what we could afford, which really meant, based on the payments we could afford. Like many people, that’s how we previously defined “affordable.”
When we signed the papers the first time, we thought we couldn’t get a good mortgage – and by good, I mean a fixed rate for a certain amount of time at the end of which you hold a great big mortgage burning party – because we didn’t live here full time.
Although our land was paid for and we had the highest credit rating possible, our city bank wouldn’t loan money for property out of state, and all of the banks in this town, save for one, refused us a mortgage.
That bank would only do a 5 year ARM (adjustable rate) with a balloon.
When we moved, we thought things would be different, but we were wrong. This time, the bank refused us a “good” mortgage because of the lack of comps, those irritating “comparables” that have become the backbone of defining what your home is worth.
We live in an area where people were buying and selling behemoth McMansions on the lake, there were no “comps” within 50 miles for acreage on the lake that housed a 480-square foot Little House.
The secondary market refused us because we weren’t asking for enough money.
It was a real kick in the pants to learn we had worked all of our lives to build our credit to an exceptional level, and even the land to support the risk, lenders thought we just didn’t have enough house.
Rather than working toward an end, we now feel we’re stuck in a never-ending cycle of 5 year ARMS that have to be renewed (possibly at much higher rates).
Had we known this seven years ago when we started building, our definition of “building what we can afford” might have been a lot different.
I’m glad we went for our dream and we are here, arriving here the only way we knew we could, but those hoping to move to a small house should be aware of the difficulties if you planned on financing all or part of your dream.
If you must use financing, I would advise seeking out a locally owned bank if you can, where they are much more inclined to work with you based on who you are as a customer, rather than placing so much emphasis on comps and minimum loan amounts.
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